September 24, 2013

What's at stake

For one thing, it would raise the United States’ borrowing costs, with investors demanding more in exchange for their cash. How much more, we do not know. But a 0.5 percentage point increase in Treasury rates ... would eventually cost about $75 billion a year....

The price tag on a huge range of other debt products is benchmarked to the cost of Treasuries. That means a spike in the federal government’s borrowing costs would translate into pricier mortgages, car loans and corporate borrowing costs. And that means a slower recovery.

There would be other second-order effects too. Investors dumping stocks and fleeing to cash might depress business confidence and depress the wealth effect of the recent run-up, for instance. International markets would feel the pain too.

Terrible though it may be, a default may actually be necessary to preserve the constitutional structure of American government and the rest of Obama’s presidency.

That's because anything less than an impenetrable wall of White House resistance to negotiating an end to a debt-ceiling crisis would condemn successive administrations to debt-ceiling crises. Overnight, the "science" of politics would convert to the study of criminology, as incorrigible Congresses far into the future regularly plotted and schemed to extort their way to absolute supremacy in any demands. Our constitutional system of powers-separation would lie in ruin, more closely resembling the intellectual labors of Edward Gibbon than James Madison.

Thus whether Obama will negotiate is not a question. He can't negotiate without consigning the nation to perpetual gangsterism. And that he will not do. For Obama, a hair-raising financial crisis of Lowrey's contours is more appealing than any negotiated settlement, which of course would settle nothing. Continues Chait:

[I]t’s not clear if Republicans actually don’t understand Obama’s incentive structure or are merely pretending not to understand it.

For the first time in this wretched business of government-by-threats-and-brutality, I'd bet on the latter. I've always been inclined to believe that John Boehner "gets it"; he just couldn't bring along his troops, due to Tea Party terrorism. Now, though, I'd wager he's re-won a supportive majority--thanks to Ted Cruz, who is frightening the unholy bejesus out of them and grandly pissing them off.

Comments

For one thing, it would raise the United States’ borrowing costs, with investors demanding more in exchange for their cash. How much more, we do not know. But a 0.5 percentage point increase in Treasury rates ... would eventually cost about $75 billion a year....

The price tag on a huge range of other debt products is benchmarked to the cost of Treasuries. That means a spike in the federal government’s borrowing costs would translate into pricier mortgages, car loans and corporate borrowing costs. And that means a slower recovery.

There would be other second-order effects too. Investors dumping stocks and fleeing to cash might depress business confidence and depress the wealth effect of the recent run-up, for instance. International markets would feel the pain too.

Terrible though it may be, a default may actually be necessary to preserve the constitutional structure of American government and the rest of Obama’s presidency.

That's because anything less than an impenetrable wall of White House resistance to negotiating an end to a debt-ceiling crisis would condemn successive administrations to debt-ceiling crises. Overnight, the "science" of politics would convert to the study of criminology, as incorrigible Congresses far into the future regularly plotted and schemed to extort their way to absolute supremacy in any demands. Our constitutional system of powers-separation would lie in ruin, more closely resembling the intellectual labors of Edward Gibbon than James Madison.

Thus whether Obama will negotiate is not a question. He can't negotiate without consigning the nation to perpetual gangsterism. And that he will not do. For Obama, a hair-raising financial crisis of Lowrey's contours is more appealing than any negotiated settlement, which of course would settle nothing. Continues Chait:

[I]t’s not clear if Republicans actually don’t understand Obama’s incentive structure or are merely pretending not to understand it.

For the first time in this wretched business of government-by-threats-and-brutality, I'd bet on the latter. I've always been inclined to believe that John Boehner "gets it"; he just couldn't bring along his troops, due to Tea Party terrorism. Now, though, I'd wager he's re-won a supportive majority--thanks to Ted Cruz, who is frightening the unholy bejesus out of them and grandly pissing them off.